Banking on Pope Francis

The Vatican Bank is cleaning up its act. This week, the shadowy financial institution, which has attracted so much negative publicity in recent years, took the dramatic step of closing all foreign diplomatic accounts, after an embarrassing series of money-laundering allegations surfaced.

With more than 18,000 customers and $7 billion in deposits, the Vatican Bank – formally known as the Institute of Religious Works – is a substantial organization. Given the sovereignty of the Vatican as an independent state, the Institute is, in effect, an offshore bank. In the past, it operated through the Vatican's own worldwide embassies, counting among its clientele government officials in numerous countries. As part of these reforms, the bank branches in 20 countries would close.

Pope Francis has continued the work begun by Pope Benedict XVI to make the financial institution, long the subject of allegations of fraud and corruption on a fairly grand scale, fit for the 21st century. Francis has recently put in place a special commission with the mandate to critically examine the bank's structure and operations, whose oversight structures do not meet the international standards that now govern modern banking.

Simply put, lack of transparency and archaic procedures has made the Vatican's bank particularly attractive to individuals structuring kinds of illegal transactions that other banks now shun.

These changes are part of a broader push to reform the way the Vatican works on a day-to-day basis, including at its highest ranks. In order to further his reform agenda, Pope Francis also met this week with a specially selected group of eight cardinals, now inevitably known as the G8, reportedly, to discuss up to 80 different proposals to change or modernize aspects of the Vatican

But the problems with the bank have developed a life of their own. The troubled institution first attracted an international media frenzy in 1982 when Roberto Calvi, chairman of Banco Ambrosiano in Milan, was found hanging under Blackfriar Bridge in central London. Reminiscent of an opening scene in a tense paperback thriller, stories soon circulated about Calvi's close ties with the Vatican and possible links to the Mafia.

More recently, the concerns have centered on money laundering and tax evasion, after a Vatican accountant was arrested this year for trying to smuggle $20 million into Italy. The investigation and negative publicity led to the resignation of the bank's director general and set the scene for the current reforms.

Interestingly, the Vatican Bank is a relatively recent phenomenon in the Catholic Church's long history. Originally set up in 1942, the bank has had difficulty reconciling both the sacred and the profane demands placed upon it. In a telling admission that there may not be a meaningful role for the Vatican Bank going forward, Pope Francis has remarked that “St. Peter did not have a bank account.”

The pope also has clearly indicated his discomfort with the effects of rampant capitalism and unquestioning adherence to free-market ideologies. According to Pope Francis, “a new, invisible and, at times, virtual tyranny” has been established. As a result, champions of the bank within the Curia will likely find that the pope is unreceptive to arguments supporting the financial status quo.

Since his ascension to the throne of St. Peter, Pope Francis has signaled repeatedly that he intends to radically reshape the manner in which the Vatican operates, while at the same time changing the church's direction away from rigid conservatism and toward an openness with its members and the rest of the world. The challenges he faces are immense. It will be essential for him to build and maintain a consensus within the Vatican while he pushes the organization reluctantly forward. His popularity is a definite asset, and can provide him with opportunities that others, including his immediate predecessor, do not have.

The pope's vision of a more open and inclusive church resonates with many who have previously criticized the Vatican hierarchy for its fixation on a small number of highly divisive issues. By calling for more tolerance, he is clarifying and refocusing the church's message. By involving a wider selection of individuals in his efforts to modernize, he is reinvigorating and rebalancing the church's leadership.

Although much has been recent in recent years about the conflict between conservative and liberal forces within the church hierarchy, the Vatican Bank is perhaps a better example of the difficulties that an organization as complicated and ancient as the Catholic Church has when trying to overcome obsolete practices and self-serving cliques.

By taking definitive steps to clean up the Vatican Bank, Pope Francis is demonstrating his personal commitment to reform and modernization. Success here in the short-term would greatly assist him in achieving his long-term goals.

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